Download as PDF
Kay Inves. Series A, LLC v Nordica Invests. LLC
2013 NY Slip Op 32834(U)
November 1, 2013
Supreme Court, New York County
Docket Number: 653138/2013
Judge: Shirley Werner Kornreich
Cases posted with a "30000" identifier, i.e., 2013 NY
Slip Op 30001(U), are republished from various state
and local government websites. These include the New
York State Unified Court System's E-Courts Service,
and the Bronx County Clerk's office.
This opinion is uncorrected and not selected for official
[*FILED: NEW YORK COUNTY CLERK 11/04/2013
INDEX NO. 653138/2013
NYSCEF DOC. NO. 57
RECEIVED NYSCEF: 11/04/2013
SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY
JUSTICE SHIRLEY \VERNER KORNREICH
Index Number: 653138/2013
KAY INVESTMENTS SERIES A, LLC
INDEX N O . - - - - -
NORDICA INVESTMENTS LLC
SEQUENCE NUMBER : 001
MOTION SEQ. NO. - - -
PREL INJUNCTION/TEMP REST ORDER
The following papers, numbered 1 to _ _ , were read on this motion t o / f o r - - - - - - - - - - - - - Notice of Motion/Order to Show Cause - Affidavits - Exhibits
Answering Affidavits -
Replying A f f i d a v i t s - - - - - - - - - - - - - - - - - - - - -
~ )..-~ ~
I No(s). ----'~'-'7'-----
Upon the foregoing papers, it is ordered that this motion is
iJEC1::;•0N AND ORDER.
-~· j ,i\it:~ ~vu:rviOAANDUl\t:
2. CHECK AS APPROPRIATE: ......................... MOTION IS:
D CASE DISPOSED
0 GRANTED ~DENIED
3. CHECK IF APPROPRIATE: ........... ;...................................
1. CHECK ONE: ........................ ...........................................
ODO NOT POST
~ NON-FINAL DISPOSITION
GRANTED IN PART
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: PART 54
KAY INVESTMENTS SERIES A, LLC,
IL CAVALLO INVESTMENTS CORPORATION,
and ROBERT CARRILLO HERRERA, on behalf
of themselves as members ofNORDICA SOHO LLC
and in the right of NORDICA SOHO LLC, and on
behalf of all other members of NORDICA SOHO
DECISION & ORDER
-againstNORDICA INVESTMENTS LLC, a Delaware limited
liability COMPANY, NORDICA MANAGEMENT
COMPANY LLC, STEPHANE BOIVIN, STEPHANE
BIBEAU, ahd FACUNDO DE AURTENECHE
SHIRLEY WERNER KORNREICH, J.:
Plaintiffs Kay Investments Series A, LLC, Il Cavallo Investments Corporation, and
Robert Carrillo Herrera (collectively, the Preferred Members) move by order to show cause for a
preliminary injunction, pursuant to CPLR 6301, removing defendant Nordica Investments LLC
(the Sponsor,Member) as managing member ofNordica Soho LLC (the Company). Plaintiffs'
motion is denied for the reasons that follow.
Factual Background & Procedural History
This is the second action arising from defendants' alleged fraud related to their
management of the Company.
A. The F,irstAction
On May 3, 2013, the Preferred Members commenced an action in this court under Index
No. 651628/2013 (the First Action), alleging that defendants committed myriad breaches of
contract and fraud by, inter alia: (1) failing to make contractually mandated capital contributions
of over $6 million· in accordance with the Company's operating agreement; and (2) failing to
provide the Preferred Members with a contractually mandated accounting of the Company's
finances. On May 6, 2013, the Preferred Members moved by order to show cause to compel the
Sponsor Member to produce'the Company's financial records. In an order dated May 14, 2013,
this court granted the motion and ordered such records to be produced.
After the Preferred Members received some of the records, they filed an Amended
Complaint (the AC) on May 17, 2013. The AC alleged that the Company's financial records
show that the Sponsor Member: (1) never made its capital contributions; (2) stole money from
the Company; and (3) engaged in fraud and other willful misconduct on a massive scale,
including intentionally writing checks for over $200,000 on behalf of the Company, when the
Company's bank account was overdrawn by almost $30,000. Additionally, the Sponsor Member
failed to give the Preferred Members the complete set of financial records, in violation of this
court's May 14, 2013 order. Thus, on May 21, 2013, the Preferred Members filed a motion by
order to show cause for: (1) complete production of the Company's financial records; and (2)
removal of the Sponsor Member as the Company's managing member based on the wrongdoing
alleged in the AC. That motion was never decided because the parties settled the First Action
and filed a stipulation of discontinuance on June 13, 2013.
B. The Instant Action
On September 10, 2013, the Preferred Members commenced the instant action. The
complaint in this action is based on the same operative facts alleged in the AC. On September
12, 2013, the Preferred Members filed the instant motion, which seeks substantially the same
relief as their May 21, 2013 motion, which was resolved when the case settled. To date,
defendants still control the company.
The instant motion, originally scheduled for October 1, 2013, has been adjourned a
number of times. First, off the record, defendants asked for and were granted an extension of
time to file their opposition and an adjournment of the hearing due to a supposed pending loan
which would have resolved the parties' dispute. Then, after a telephone conference was held on
September 30, 2013, during which defendants made further representations about the allegedly
pending loan, the court issued an order, again extending defendants' time to file opposition and
adjourned the hearing to October 8, 2013. On that date, a hearing was held, at which the court
admonished defendants for what it believed were bad faith representations about pending
construction loans, dating back to May 2013, that would have resolved the case. In addition, the
court strongly implied that it was prepared to rule in plaintiffs' favor on the injunction
However, tlie court did not issue a ruling at the hearing because defendants produced a
copy of the parties' settlement agreement from the first action (the Settlement Agreement),
which, on its face, appears to preclude the Preferred Members from maintaining this action.
Counsel for the Preferred Members, on the record, stated that the Settlement Agreement was
merely "in escrow" pending certain conditions precedent, which supposedly did not occur. The
Preferred Members claimed they possessed documentary proof supporting this contention and
argued that they had not released their claims against defendants. The court reserved decision to
further study the Settlement Agreement and any relevant documentary evidence and permitted
briefing on this issue.
C. The Settlement Agreement
The Settlement Agreement was executed on June 13, 2013. 1 It is governed by New York
law. Section V.8, an integration clause, states that the Settlement Agreement "sets forth the
entire agreement between the parties with respect to the Sll;bject matter [i.e. the settlement and
release of all claims from the first action, as set forth in Section II(i)]". The integration clause
also disclaims and waives any prior agreements, collateral agreements, and representations not
contained in the Settlement Agreement. In other words, the parties' rights are governed only by
the express terms of the Settlement Agreement and not (as discussed below), by the emails sent
by their counsel shortly before they executed it.
The terms of the Settlement Agreement provide the following. In exchange for releasing
the claims in the first action, defendants agreed to pay the Preferred Members $4.25 million, the
collective amount of their investment in the Company (the First Payment), plus the 20% per
annum return originally agreed to in the Company's operating agreement (the Preferred Return).
Settlement Agreement, Section I.l(i) & (i)(a). Ttie Settlement Agreement does not state a
definitive due date for the First Payment. Nor does it say that the closing of financing is a
condition precedent to mutual releases or any other piece of the Settlement.
Section I. I (i) of the Settlement Agreement, however, merely provides that the First
Payment must be made at the closing of the "the Madison Loan" (discussed below), which was
"estimated to take place on June 14, 2013." At that time, upon receipt o.f the First Payment, the
Preferred Members are supposed to transfer title to their equity in the Company to the Sponsor
Member. As for payment of the Preferred Return (approximately $1.3 million), the first
Though the Settlement Agreement has a confidentiality provision, it is material to this action
because, as discussed herein, its terms will (upon further application by defendants) likely
require dismissal of this case. Therefore, the Settleip.ent Agr~,ement will not be sealed.
$100,000 is due within 30 days of the Madison Loan's closing. The remainder of the money,
which accrues at a 7% annual interest rate, is due by June 30, 2015. The Preferred Return is
secured by a Note, personally guaranteed by defendant Stephane Boivin.
"The Madison Loan" was one of the "imminent" transactions that defendants' counsel
claimed would resolve this case. It was supposed to be a construction loan from non-party
Mason Realty Capital, which would be used to renovate the subject property (the Company's
main asset). Section IV.1 (in the section titled "Representations and Warranty of Buyers [the
Sponsor Member]") of the Settlement Agreement provides:
[The Sponsor Member] represents and warrants as a necessary and material term
of this Agreement that it has the right to utilize the funds borrowed from Madison
Realty Capital, according to Madison's May 21, 2013 Confidential Commitment,
and any extension of that offer from Madison on identical terms, for the purpose
of the purchasing of [the Preferred Mehibers'] ownership interest in [the
The Preferred Members' argue that this Section creates a condition precedent, making
settlement dependent upon the closing of the Madison Loan. Further, the Preferred Members
contend that emails exchanged by the parties demonstrate that the Settlement Agreement was
meant to be held "in escrow" pending the closing of the Madison Loan. The court rejects both
Obviously, such a contemporaneous agreement, even in writing, is precluded by the
Settlement Agreement's integration clause. However, for the reasons discussed in Part II, even
if such an agreement were valid, the emails merely evidence a narrower escrow agreement than
the Preferred Members aver, and does not include holding the Settlement Agreement in escrow
pending the Madison Loan's closing.
To succeed on a motion for a preliminary injunction, the movant must demonstrate a
likelihood of ultimate success on the merits, that irreparable injury would result in the absence of
injunctive relief, and that a balancing of the equities to effect substantial justice and to preserve
the status quo warrants the grant of this extraordinary relief. CPLR 6301; Key Drug Co. v Luna
Park Realty Assoc., 221 AD2d 598, 599 (2d Dept 1995); Pilgreen v 9I Fifth Ave. Corp., 91
AD2d 565, 567 (1st Dept 1982), app dismissed, 58 NY2d 1113 (1983). Additionally, the
movant "must demonstrate a clear right to relief which is plain from the undisputed facts," to
establish its likelihood of success. Blueberries Gourmet Inc. v Aris Realty Corp., 255 AD2d
348, 349-50 (2d Dept 1998). Where questions of fact exist "'.hich would substantially subvert
the movant' s likelihood of ultimate success, an injunction should not be granted. Adv. Digital
Sec. Solutions, Inc. v Samsung Techwin Co., 53 AD3d 612, 613 (2d Dept 2008). Furthermore,
"economic loss, which is compensable by money damages, does not constitute irreparable harm"
and so does notjustify injunctive relief. DiFabio v Omnipoint Comm's Inc., 66 AD3d 635, 637
(2d Dept 2009), quoting Walsh v Design Concepts, 221AD2d454, 455 (2d Dept 1995).
The Preferred Members have failed to show a likelihood of success on the merits.
Indeed, this action is precluded by the Settlement Agreement. Ergo, as the Preferred Members
are likely barred from maintaining this case, the court need not assess the merits of their
A. Sections I I(!), (i)(a), & IV. I
Settlement agreements "are favored by the courts and not lightly cast aside.". Hallock v
State, 64 NY2d 224, 230 (1984). Moreover, "[a] settlement agreement is a contract between the
parties, it must be construed according to ordinary contract law." Lyons v Whitehead, 291 AD2d
497, 499 (2d Dept 2002).
It is well established that contracts "are construed in accord with the parties' intent."
Greenfield v Phil/es Records, Inc., 98 NY2d 562, 569 (2002). "The best evidence of what
parties to a written agreement intend is what they say in their writing. Thus, a written agreement
that is complete, clear and unambiguous on its face must be enforced according to the plain
meaning of its terms." Id. '(citations omitted). Furthermore, "pr~visions in a contract are not
ambiguous merely because the parties interpret them differently." Mount Vernon Fire Ins. Co. v
Creative Housing Ltd., 88 NY2d 347, 362 (1996). "The ultimate aim is to realize the parties'
'reasonable expectations' through a practical interpretation of the contract language." Gessin
Elec. Contrs., Inc. v 95 Wall Assocs., LLC, 74 AD3d 516, 518 (1st Dept 2010), quoting Sutton v
E. River Savings Bank, 55 NY2d 550, 555 (1982).
The Preferred Members contend that the Settlement Agreement, and, specifically the
language of Sections I.1(1), (i)(a), & IV.I (which discuss the Madison Loan), provides that the
closing of the Madison Loan is a condition precedent to the release of their claims in the first
action. "A condition precedent is 'an act or event, other than a lapse of time, which, unless the
condition is excused, must occur before a duty to perform a promise in the agreement arises."'
Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 (1995), quoting
Calamari & Perillo, Contracts§ 11-2, at 438 (3d ed). When a contract contains a condition
precedent to "the formation or existence of the contract itself ... no contract arises 'unless and
until the condition occurs."' Id. (internal citation omitted). "In determining whether a particular
agreement makes an event a condition courts will interpret doubtful language as embodying a
promise or constructive condition rather than an express condition. This interpretive preference
is especially strong when a finding of express condition would increase the risk of forfeiture by
the obligee." Id. at 691, citing Restatement [Second] of Contracts§ 227(1); see also DirecTV
Latin America, LLC v RCTV Int'/. Corp., 38 Misc3d 1212(A), at *5 (Sup Ct, NY County i'o13)
(finding no condition precedent where the contract's description of the alleged condition lacked
prefacing language, such as "if' or "unless and until").
, The express language of the Settlement Agreement does not condition its enforcement on
the closing of the Madison Loan. Had the parties, who were all represented by counsel, wished
to agree to such a condition precedent, they could have explicitly provided for one in the
Settlement Agreement. Instead, the relevance of the Madison Loan in the Settlement Agreement
is limited to the timing of the payments to the Preferred Members and the stock transfer to the
Sponsor Member. The representation contained ill Section IV.1 addresses the Sponsor Member's
right to access the funds, a right not challenged by the Preferred Members . The court cannot
change the terms of the parties' negotiated agreement, nor can the court give weight to the
parties' supposed contemporaneous side agreements, which are disclaimed by the integration
clause. That being said, given that the Madison Loan did not close in June, and has not yet ,
closed, it is unclear when the payments are due. However, this issue is not before the court, as
this motion does not seek to compel the Sponsor Member to make the First Payment or the
Preferred Members to transfer their shares. That is'a matter for another day, and, in any event,
there may not be a dispute ifthe Madison Loan closes or some other source of funding (such as
sale of the subject property) takes place.
B. The "If,scrow Agreement"
On June 12, 2013, the day before the Settlement Agreement was executed, the parties
exc_hanged the following emails. At 3 :29 pm, counsel for the Preferred Members sent counsel
for the Sponsor Member the following email:
Pursuant to our conversation, detailing the agreement to hold the attached
documents in escrow:
Please find enclosed the signed stipulation of discontinuance that we
agreed you will hold in escrow and not file until I receive the following
agreements signed by your client: settlement agreement, promissory note,
and personal guaranty.
Please find enclosed the signed Settlement Agreements (in counterparts)
that we agreed you will hold in escrow and not file until I receive the
following agreements signed by your client: settlement agreement,
promissory note, and personal guaranty.
Please reply to acknowledge that you will hold said documents in escrow.
Counsel for the Sponsor I\1ember replied at 3 :49 pm:
There is nothing attached.
And we did not agree that the stipulation of discontinuance would be held
in escrow - we said that the Note, Guarantee, and [Transfer Certificates]
would be held in escrow until the Madison Loan was closed.
I'm not sure if there is an issue here or something, but I have told you over
the last few days that I am here and available to talk to you by phone to
work through any processes or misunderstandings.
Please call me if there is something you need to discuss for clarity. And
please send me the Settlement Agreement in signed counterparts and then
we will sign the Discontinuance Stipulation.
Counsel for the Preferred Members replied at 4:37 pm:
Please find enclosed the signed Settlement Agreements (in counterparts)
that we agreed you will hold in escrow and not file until I receive, review
and approve the following agreements signed by your client: settlement
agreement, promissory note, and personal guaranty. The Discontinuance
will not be filed until the promissory note and personal guaranty are
produced, we consider the promissory note and personal guarantee to be
part of the Settlement Agreement.
At 4:45 pm, counsel for the Sponsor Member replied:
I do not know what you mean by holding the Settlement Agreement "in
escrow" - this is an agreement that is entered into by the parties.
As far as the other agreements and documents necessary to transfer the
Sellers' NS Percentage Interest, the executed Promissory Note, Guaranty,
Transfer Certificates, and Stipulation of Discontinuance, we agree that
they shall be held in escrow by the attorneys (plaintiffs' attorney shall
hold the Note and Guaranty - defendants' attorney shall hold Transfers
and Stipulation) to be released or filed, upon the closing of the Madison
Loan, and the First Payment being distributed to the Sellers' counsel.
If you agree to this, please confirm by email and I will forward you the
scanned executed Note and Guaranty.
At 5:07 pm, counsel for the Sponsor Member followed up:
Are we in agreement here? Should I send you the documents for you to
hold in escrow, and visa versa?
At 7:20 pm, counsel for the Preferred Members responded:
Yes, I will hold in escrow, you are to continue to hold our documents in
escrow as well until we have a chance to review.
At 8:51 pm, counsel for the Sponsor Member replied:
Attached are the executed promissory note and guarantee, as discussed, to
be held by [Preferred Members'] counsel in escrow uhtil transfer of the
Also as discussed, [Preferred Members'] counsel will execute the
stipulation of discontinuance, which will be held in escrow by my office
until transfer of title of [the stock].
[The Preferred Members] will also provide executed certificates of
transfer, which I will hold in escrow until transfer of title.
The following day, the Settlement Agreement was executed, including all of the incorporated
documents (e.g. the note and personal guarantee).
This pre-execution back-and-forth is legally irrelevant, since the Settlement Agreement's
integration cl.ause disclaims reliance on terms not incorporated into the written contract. Again,
had the parties wished to·hold the Settlement Agreement in escrow, they could have included
such language in the Settlement Agreement itself.
That being said, the emails do not contain a meeting of the minds to hold the Settlement
Agreement in escrow. Rather, the purpose of the parties' "escrow" arrangement was to ensure
the documents related the Settlement Agreement would be acted on in the proper manner. For
instance, the parties wanted to ensure that the stock transfer documents would not cause title to
pass to the Sponsor Member until the Preferred Members received the First Payment. Likewise,
the Sponsor Member wanted to ensure that it would not be bound by the note and Boivin would
not be bound by the personal guarantee until the parties all signed the Settlement Agreement.
Contrary to the argument now made by the Preferred Members, these emails do not premise the
effect of the Settlement Agreement, or the mutual release of claims asserted in the First Action,
on the closing of the Madison Loan.
Over the months following the Settlement Agreement's execution, particularly in late
June and throughout the rest of the summer, the parties' counsel exchanged numerous emails
that the court will not reproduce given their length. Suffice it to say, these post-execution emails
evidence great regret on the part of the Preferred Members. It appears that the Preferred
Members wish they had not signed the Settlement Agreement. They consistently tried to
re frame the scope of the parties' "escrow" arrangement to claim that the entire Settlement
Agreement was hot to be effective until the Madison Loan closed. The Preferred Members may
have wished they had agreed to such a condition precedent, but the documents do not evidence
such an arrangement.
At this juncture, the court need not definitively tule out the Preferred Members' version
of history. This is a_ preliminary injunction motion, and the ultimate adjudication of the merits is
not at stake. Nevertheless, assessing whether the movants, the Preferred Members, have
established a likelihood of success on the merits, the court cannot find in their favor.
The court reached this conclusion after the supplemental briefing was submitted.
However, the court did not issue this decision at that time becau~e defendants, once more,
informed the court that an imminent transaction would moot this case. Specifically, defendants
represented that they had contracted for the sale of subject property. To wit, defendants
represented that there were already millions of dollars in escrow from the buyer's down
payment. The parties agreed to have this motion held in abeyance pending their attempt to reach
a new settlement, whereby the Preferred Members would be paid immediately, in cash, the full
amount that they previously settled for. This, of course, was an attractive prospect for the
Preferred Members, because they would not have had to wait until 2015 to receive all of their
money. Unfortunately, the parties did not settle.
Finally, the court notes that, even though the Settlement Agreement is binding, the
Preferred Members still have their equity in the Company because the transfer of such equity to
the Sponsor Member has not occurred since the First Payment has yet to be made. Given the
details of the proposed sale, the court reminds the parties that such sale must comply with the
Company's operating agreement. Until the First Payment (of $4.25 million) is made, the
Preferred Members retain their equity and all attendant rights. Hence, even though the Sponsor
Member remains in charge of the Company, the proposed sale cannot violate the Preferred
Members' rights under the operating agreement. The parties are strongly urged to settle this
matter (and promptly make the First Payment). If they do not, the court will surely be faced with
a motion to dismiss the action, a motion to enjoin the sale, and a motion to compel payment
under the Settlement Agreement. Efficiency and common sense militate against such further
litigation, though it is the parties, not the court, who must choose which path forward is in their
best interest. Accordingly, it is
ORDERED that the motion by plaintiffs Kay Investments Series A, LLC, Il Cavallo
Investments Corporation, and Robert Carrillo Herrera for a for a preliminary injunction to
remove defendant Nordica Investments LLC as managing member of Nordica Soho LLC is
Dated: November 1,, 2013